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Rating Action:

Moody's affirms Commerzbank's A2 deposit and Baa1 unsecured debt ratings

12 Dec 2017

Changes outlook on deposit ratings to positive reflecting strengthening financial profile

Frankfurt am Main, December 12, 2017 -- Moody's Investors Service (Moody's) today affirmed Commerzbank AG's A2 deposit and senior senior unsecured debt ratings as well as its Baa1 senior unsecured debt and issuer ratings, and its Ba1 subordinated debt ratings. The outlook on the bank's long-term deposit and senior senior unsecured debt ratings was changed to positive from stable, the outlook on the bank's senior unsecured debt and issuer ratings was maintained at stable. The bank's short-term ratings were affirmed at P-1.

At the same time, the rating agency affirmed Commerzbank's Baseline Credit Assessment (BCA) and Adjusted BCA at baa3, and its long- and short-term Counterparty Risk Assessment (CR Assessment) at A2(cr)/P-1(cr).

Moody's also affirmed Commerzbank Finance & Covered Bond S.A.'s (CFCB) issuer rating at Baa1. The outlook on the rating remains stable. In addition, the rating agency affirmed CFCB's baa3 BCA and its A2(cr)/P-1(cr) CR Assessment.

A full list of affected ratings and rating inputs can be found at the end of this press release.

RATINGS RATIONALE

--AFFIRMATION OF COMMERZBANK'S BASELINE CREDIT ASSESSMENT (BCA)

Following an improvement in Commerzbank's reported solvency profile during the past 12 months, Moody's has today affirmed the bank's baa3 BCA. In assessing the progress the bank has made since its launch of its strategy "Commerzbank 4.0", and also incorporating the rating agency's expectation for the bank's performance during the 12-18 months outlook period, Moody's sees Commerzbank on track towards a higher BCA, provided that the achieved progress in improving its underlying credit metrics will prove sustainable.

During 2017, Commerzbank has further de-risked its balance sheet and successfully reduced its non-core portfolio, in particular exposures to the shipping industry and commercial real estate (CRE) sectors, to a combined EUR5.0 billion or 21% of its Common Equity Tier 1 (CET1) capital as of 30 September 2017, down from EUR7.7 billion or 33%, respectively, as of end-September 2016. Moreover, the faster-than-anticipated increase in the bank's CET1 capital ratio to 13.5% as of 30 September 2017, up 170 basis points over the same period last year, has improved the bank's ability to withstand sudden market shocks, and added flexibility with regard to the further wind-down of its non-core portfolio.

As a result of its continued downsizing, Commerzbank has also sustainably reduced the level of market funding reliance during recent years. The rating agency therefore expects Commerzbank's ratio of market funds as a percentage of total funding to reside within a range of 25-30%, supporting its Combined Liquidity profile and score. The positive fundamental assessment also takes account of Moody's expectation of the bank's improving profitability, albeit from a very low level, largely because impairment and restructuring charges as part of the bank's strategic program will no longer burden the bank's profit and loss account.

--RATIONALE FOR THE POSITIVE OUTLOOK ON COMMERZBANK'S DEPOSIT RATINGS

The outlook change to positive on the bank's long-term deposit and senior senior unsecured debt ratings follows the affirmation of the bank's BCA at baa3 in combination with the identified fundamental improvement that has moved Commerzbank's intrinsic financial strength closer to a level required for a higher BCA and reflects Moody's expectation that the bank will be able to at least sustain its solvency metrics over the next 12-18 months.

-- RATIONALE FOR THE STABLE OUTLOOK ON COMMERZBANK'S SENIOR UNSECURED DEBT RATINGS

The stable outlook on Commerzbank's senior unsecured debt and issuer ratings reflects the balancing implications of a declining probability of government support upon transposition of the BRRD amendments into German law and the positive fundamental drivers for the bank's BCA.

This follows the agreement to an amendment to the EU's Bank Recovery and Resolution Directive (BRRD), which requires member states to introduce a class of non-preferred senior debt and therefore aims to improve the consistency between creditor hierarchies across the EU. Transposition into national law is required by year-end 2018, before EU banks become subject to total loss absorbing capacity (TLAC) requirements or to minimum requirements for own funds and eligible liabilities (MREL). This development is expected to be credit negative for investors in senior unsecured bonds issued by German banks.

It is Moody's view that, once the directive's amendment is transposed into German law, unsecured bonds that meet the definition of article 46f of the German Banking Act (§46f KWG) could rank pari passu with future junior senior bonds. This may call into question the moderate probability of government support Moody's currently assumes for Commerzbank's senior unsecured debt instruments and, thus, the government support rating uplift of one notch currently incorporated into the rating of these instruments.

-- COMMERZBANK FINANCE & COVERED BOND S.A. (CFCB)

The affirmation of CFCB's baa3 BCA and Baa1 issuer rating with a stable outlook reflects the affirmation of Commerzbank's ratings. In Moody's opinion, the Luxemburg entity's operations are very closely integrated with those of its parent, which holds all of CFCB's senior unsecured funding. Accordingly, CFCB's ratings follow Commerzbank's ratings.

WHAT COULD CHANGE THE RATINGS UP/DOWN

An upgrade of Commerzbank's long-term debt and deposit ratings would be likely in the event of (1) a higher BCA; or (2) a higher rating uplift as a result of Moody's Advanced LGF analysis for the bank's senior unsecured debt ratings.

Upward pressure on Commerzbank's baa3 BCA could result from a stabilization of its financial profile at the current or a moderately improved level, for example due to (1) a further improvement of its asset risk metrics, including a further reduction of sector concentrations; combined with (2) maintenance of the achieved capital ratios and balance sheet leverage; and (3) a persistent strengthening of the bank's recurring earnings power.

Commerzbank's senior unsecured and subordinated debt ratings could also be upgraded if the volume of subordinated instruments significantly increases relative to the bank's tangible banking assets. This could result in one additional notch of rating uplift resulting from Moody's Advanced LGF analysis.

A downgrade of Commerzbank's debt and deposit ratings could be triggered following (1) a deterioration of the bank's financial fundamentals supporting its BCA and; (2) fewer notches of rating uplift as a result of Moody's Advanced LGF analysis; or (3) a reduction of the rating agency's government support assumptions.

Downward pressure on the bank's BCA could result from (1) a weakening of the bank's Strong+ Macro Profile, (2) meaningful renewed pressure on its asset quality and capital adequacy metrics; and (3) a significant weakening of the bank's Combined Liquidity profile.

Downward pressure stemming from Moody's LGF analysis could result from a significant decrease in the bank's bail-in-able debt cushion, leading to a higher loss severity of Commerzbank's deposits and/or senior unsecured debt at failure.

LIST OF AFFECTED RATINGS

Issuer: Commerzbank AG

..Affirmations:

....Long-term Counterparty Risk Assessment, affirmed A2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Long-term Bank Deposits, affirmed A2, outlook changed to Positive from Stable

....Short-term Bank Deposits, affirmed P-1

....Senior Senior Unsecured Regular Bond/Debenture, affirmed A2, outlook changed to Positive from Stable

....Senior Senior Unsecured Medium-Term Note Program, affirmed (P)A2

....Long-term Issuer Rating, affirmed Baa1 Stable

....Senior Unsecured Regular Bond/Debenture, affirmed Baa1 Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Subordinate Regular Bond/Debenture, affirmed Ba1

....Subordinate Medium-Term Note Program, affirmed (P)Ba1

....Other Short Term, affirmed (P)P-1

....Commercial Paper, affirmed P-1

....Adjusted Baseline Credit Assessment, affirmed baa3

....Baseline Credit Assessment, affirmed baa3

..Outlook Action:

....Outlook changed to Positive(m) from Stable

Issuer: Commerzbank AG, London Branch

..Affirmations:

....Long-term Counterparty Risk Assessment, affirmed A2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Commercial Paper, affirmed P-1

..Outlook Action:

....Outlook changed to Positive(m) from Stable

Issuer: Commerzbank AG, New York Branch

..Affirmations:

....Long-term Counterparty Risk Assessment, affirmed A2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Subordinate Medium-Term Note Program, affirmed (P)Ba1

....Other Short Term, affirmed (P)P-1

..Outlook Action:

....Outlook remains stable

Issuer: Commerzbank Finance & Covered Bond S.A.

..Affirmations:

....Long-term Counterparty Risk Assessment, affirmed A2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Long-term Issuer Rating, affirmed Baa1 Stable

....Adjusted Baseline Credit Assessment, affirmed baa3

....Baseline Credit Assessment, affirmed baa3

..Outlook Action:

....Outlook remains Stable

Issuer: Commerzbank U.S. Finance Inc.

..Affirmations:

....Backed Commercial Paper, affirmed P-1

....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

..No Outlook assigned

Issuer: Dresdner Bank AG (Debts assumed by Commerzbank AG)

..Affirmations:

....Senior Senior Unsecured Regular Bond/Debenture, affirmed A2, outlook changed to Positive from Stable

....Senior Unsecured Regular Bond/Debenture, affirmed Baa1 Stable

....Subordinate Regular Bond/Debenture, affirmed Ba1

..No Outlook assigned

Issuer: Dresdner Funding Trust I

..Affirmation:

....Preferred Stock Non-cumulative, affirmed Ba2(hyb)

..No Outlook assigned

Issuer: Dresdner Funding Trust IV

..Affirmation:

....Senior Subordinated Regular Bond/Debenture, affirmed Ba1

..No Outlook assigned

Issuer: Dresdner U.S. Finance Inc.

..Affirmation:

....Backed Commercial Paper, affirmed P-1

..No Outlook assigned

Issuer: Eurohypo AG (Old) (Debt assumed by Commerzbank AG)

..Affirmation:

....Subordinate Regular Bond/Debenture, affirmed Ba1

..No Outlook assigned

Issuer: HT1 Funding GmbH

..Affirmation:

....Preferred Stock Non-cumulative, affirmed Ba2(hyb)

..No Outlook assigned

Issuer: Hypothekenbank Frankfurt AG (Debts assumed by Commerzbank AG)

..Affirmations:

....Senior Senior Unsecured Regular Bond/Debenture, affirmed A2, outlook changed to Positive from Stable

....Senior Unsecured Regular Bond/Debenture, affirmed Baa1 Stable

....Subordinate Regular Bond/Debenture, affirmed Ba1

..No Outlook assigned

Issuer: Hypothekenbank in Essen AG (Debt assumed by Commerzbank AG)

..Affirmation:

....Subordinate Regular Bond/Debenture, affirmed Ba1

..No Outlook assigned

Issuer: RHEINHYP Rheinische Hypothekenbank AG (Debts assumed by Commerzbank AG)

..Affirmations:

....Senior Unsecured Regular Bond/Debenture, affirmed Baa1 Stable

....Subordinate Regular Bond/Debenture, affirmed Ba1

..No Outlook assigned

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael Rohr
VP - Senior Credit Officer
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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